The top oil producers in the world have decided to marginally increase output in an effort to lower the high prices.
Russia is a member of the Opec+ group of oil producers, which agreed on Wednesday to increase market supply by 100,000 barrels per day starting in September.
The most recent increase in industrial output is happening considerably more slowly than in prior months.
The decision is a setback for those in authority who had urged for more output.
One of them is US Vice President Joe Biden, who visited Saudi Arabia in an effort to personally persuade the nation to increase oil production in order to help stabilize skyrocketing prices.
Since February, crude has routinely traded at well above $100 per barrel, increasing the cost of living in many nations.
The 13-member Opec cartel was established in 1960 with the intention of regulating the price and supply of oil globally.
President Biden stated that he anticipated supplies to rise following his meeting with Saudi Crown Prince Mohammed Bin Salman. Saudi Arabia is the cartel’s largest producer.
Officials from Saudi Arabia emphasized that Opec+ would be consulted before any decision to boost supply was made.
Opec+ has agreed to increase daily market supply by more than 600,000 barrels for the months of July and August.
But following the most recent meeting, Opec+ made the insulting decision to increase oil output from September by merely 100,000 barrels per day.
“That is pointless since it is so little. It is a little blip in terms of physical size. It almost comes across as an arrogant political gesture “Raad Alkadiri, managing director for sustainability, energy, and climate at Eurasia Group, stated.
Russia is a member of Opec+, a larger group of 23 oil-exporting nations that meets monthly in Vienna to decide how much crude oil to sell on the international market.
Opec+ started a series of cutbacks back in April 2020 that persisted as demand decreased during the coronavirus epidemic. It has been gradually rebuilding this depleted supply since 2021.
Opec+ resolved to slightly boost its production of barrels for the month of August at their most recent meeting.
However, it might not be so simple to just turn the faucets on full. On paper, some cartel members, including Angola, Nigeria, and Malaysia, are already having trouble achieving their current monthly supply objectives.
Due to western sanctions, Russian shipments have also decreased concurrently. Meanwhile, Moscow has increased its supplies to clients in Asia, including China and India.
The only two significant participants with some extra capacity are Saudi Arabia, the lynchpin, and neighboring United Arab Emirates.
However, Saudi Arabia’s production target for August is 11 million barrels per day, which, according to energy analysts, is already at a very high level and leaves little possibility for further increases.
The conflict in Ukraine, rising interest rates, and the impending recession in many western nations might all significantly reduce demand.
According to experts, these issues are making the organization cautious and hesitant to drastically raise their productivity.
“The fact that there are so many unanswered questions worries Saudi Arabia and Opec+. Nobody is certain of the state of the oil markets in six months or a year “Karen Young, a senior scholar at the Middle East Institute in Washington, DC, acknowledged this.
This, she continued, implies that Saudi Arabia and the United Arab Emirates would need to utilise their extra supply carefully.
They don’t want to be in a position where they use their little spare capacity to ramp-up production and are then abruptly left with no flexibility to make adjustments if demand unexpectedly increases or decreases in the future, she continued.
Russia, after the US and Saudi Arabia, was the third-largest oil producer in the world prior to the invasion of Ukraine. It made roughly 8–10% of the world’s oil supply.
According to market analysts, President Vladimir Putin wants to maintain oil prices high in order to continue funding the conflict in the Ukraine and fend off the negative effects of severe western economic sanctions.
Saudi Arabia prioritizes the Opec+ group’s unity and will refrain from taking any actions that can compromise it.
Opec predicts that albeit at a slower rate than this year, the world’s oil consumption will increase in 2023.
According to its analysts, this will be influenced by developments in the fight against the coronavirus in China.
In the meanwhile, estimates from the US Energy Information Administration and the International Energy Agency indicate that oil consumption will continue to rise sharply, despite mounting concerns about inflation in several nations and slowing economic development.
Given capacity restrictions and the lack of investment in downstream and refining, oil producers may be forced to pump oil at a rate that is faster than it has been in the previous five years in order to balance supply and demand.
Ben Cahill, a senior fellow at the Centre for Strategic and International Studies in Washington, said, “There is a lot of volatility in the markets, but not many people predict a prolonged slide below $100 a barrel.”
This year, American gas prices have already surpassed a 13-year high.
As part of its strategy to add 180 million barrels to the market over a six-month period ending at the end of October, the US has been releasing around a million barrels per day from its Strategic Petroleum Reserve (SPR) since April.
But Mr. Cahill cautioned that after this roll-out ends, supplies would become much more scarce, increasing pressure on pricing.
“There are still no indications that significant investments are being made to boost output. Therefore, if demand increases, we won’t have enough supplies to maintain market equilibrium ” he added.